Events

Dr. Robbie Moon
Assistant Professor of Accounting
Scheller College of Business
Georgia Institute of Technology

We examine whether the social media reaction to an important firm disclosure provides a signal
of the quality of that disclosure and whether capital market participants’ reactions to the disclosure
are consistent with the social media reaction. Specifically, we examine the sentiment of posts on
StockTwits immediately following management forecasts and offer three main findings. First, the
relation between StockTwits sentiment and forecast news is stronger when the forecast is later
revealed to be more accurate and less biased, suggesting that StockTwits provides an early signal
of forecast quality. Second, we find a positive association between the extent to which social media
sentiment agrees with the forecast news and stock price reaction to the management forecast. This
suggests that when social media sentiment agrees with management forecast news, investors do
too. Finally, we find a positive association between the extent to which social media sentiment
agrees with the forecast news and subsequent analyst forecast revisions, particularly when forecast
news is positive. This suggests that when social media sentiment agrees with positive management
forecast news, analysts do too. Intraday analysis provides preliminary evidence that investors
appear to respond to sentiment following good news forecasts, but long-run tests suggest that
investors appear to underreact to the signal provided by social media sentiment, while analysts
appear to overreact to the signal. Overall, our results suggest that the social media reaction to
management forecasts provides a timely and accurate reflection of not only the forecast’s quality,
but also of how the forecast will be received by important capital market participants.